Transfers of UK pension schemes to qualifying recognised overseas pension schemes effectively started on April 6, 2006. Since that date, hundreds of overseas pension schemes, in a variety of different countries and jurisdictions, have been approved by HM Revenue & Customs to accept pension funds transferred in from UK pension schemes.
Still considered a relatively new concept, Qrops are an important retirement option for any UK financial adviser that may have a client that has migrated or is considering migrating overseas.
For some advisers, who may not come across this situation too often, Qrops can be a complex area. However, added to this area of retirement planning, Qnups, or qualifying non-UK pension schemes, have been introduced by HMRC this year.
Why have Qnups been introduced?
The Qrops rules that originally appeared in the Finance Act 2004 and Statutory Instrument 2006/206 (which was laid before the House of Commons on February 2, 2006) set out the conditions that an overseas scheme would need to meet to become a Qrops.
However, omitted from the Finance Act 2004 were regulations regarding UK inheritance tax. As things stood, UK pensions funds, once transferred to a Qrops could become liable to UK IHT. The Inheritance Tax (Qualifying Non-UK Pension Schemes) Regulations 2010 (in statutory instrument 2010/51) rectified this omission.
There are no reporting requirements for any benefits or payments made to Qnups members, as there are with Qrops, whether this is within complete tax years of the member’s overseas residency or not
These rules, which came into force on February 15, 2010 (and were effectively backdated to April 6, 2006), meant that a non-UK resident can now transfer UK pension funds to a Qrops and upon death, whether before or after the age of 75, the funds would not be subject to UK IHT.
These rules, however, do not just apply to pension schemes approved by HMRC as Qrops. Providing the overseas pension scheme fits certain criteria, it can be recognised by HMRC as a Qnups and the funds held within the scheme would not be subject to UK IHT.
How does an overseas scheme become recognised as a Qnups?
To become recognised as a Qnups, an overseas scheme has to meet some key requirements. Full details of these conditions are set out in statutory instrument 2010/501 but the conditions for the estab-lishment of Qnups are almost identical to those of Qrops but with one or two impor-tant differences.
The most important difference is that a Qnups does not have to register with HMRC. As a result of this, there are no reporting requirements for any benefits or payments made to the member, as there are with Qrops, whether this is within complete tax years of the member’s overseas residency or not.
By definition, therefore, all Qrops are Qnups but many Qnups will not be approved as Qrops.
What opportunities arise with the intro-duction of Qnups?
For a UK or non-UK resident, there is an opportunity to make contributions to overseas schemes, established as Qnups, with the knowledge that those funds will be sheltered from UK IHT.
As the schemes are overseas schemes, the level of contributions made into the Qnups would depend on the permitted maximums of the local rules of the country or jurisdiction.
However, most jurisdictions are not going to have the restriction of an annual allowance, as in the UK. Similarly, the level of bene-fits paid from the schemes would also be dictated by the jurisdiction.
There is also the opportunity, after five complete UK tax years of overseas resid-ency, to transfer funds in a Qrops into a Qnups.
This could be advantageous to those migrants who, due to unforeseen circumstances, may have to return to the UK.
If you return to the UK and your pension funds are still in a Qrops, the UK reporting requirements start again and any pension or death benefits would once again be restricted to those of the UK (or you would face an unauthorised payments charge).
If the funds had transferred from the Qrops to the Qnups before returning to the UK, then, as previously mentioned, the benefits are not subject to the HMRC reporting requirements.
Are there any restrictions with Qnups?
Although an individual can make bigger contributions into a Qnups than they could into the UK pension system – depending on the jurisdic- tion where the Qnups is established – there would not be tax relief available on those contributions.
A second restriction is that an individual could not trans-fer their existing benefits in a UK-registered pension scheme directly into a Qnups unless the scheme has already been established as a Qrops.
Many planning opportunities could arise for IFAs with highnet-worth clients as a result of the Qnups legislation, with plenty of overseas providers already marketing their Qnups product.